A gold exchange-traded fund (or GETF) is an exchange-traded fund (ETF) that aims to track the price of gold. Gold exchange-traded funds are traded on the major stock exchanges including Zurich, Mumbai, London, Paris and New York. As of October 2009, gold ETFs held 1,750 tonnes of gold in total for private and institutional investors. There are also closed-end funds (CEF’s) and exchange-traded notes (ETN’s) that aim to track the gold price.
Each gold ETF, ETN, and CEF has a different structure outlined in its prospectus. Such instruments do not necessarily hold physical gold. For example, gold ETN’s generally track the price of gold using derivatives. All exchange-traded gold instruments, including those that hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself.
The idea of a gold ETF was first officially conceptualised by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval at first and was only launched later in March 2007.
The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol “GOLD”).
Fees
Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. U.S. based transactions are a notable exception, where most brokers charge only a small fraction of this commission rate. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. In some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold coins and bars.
In the United States sales of a gold ETF are treated as sales of the underlying commodity and thus are taxed at the 28% capital gains rate rather than the 15% long-term capital gains rate for non-collectibles.